Question

Problem 14-3A a

Condensed balance sheet and income statement data for Jergan Corporation are presented here.

Jergan Corporation Balance Sheets December 31
		2020			2019			2018
Cash		$ 30,500			$ 17,800			$ 17,700
Accounts receivable (net)		50,400			45,200			48,800
Other current assets		89,300			96,000			65,000
Investments		55,400			70,000			45,800
Plant and equipment (net)		499,100			369,200			358,400
		$724,700			$598,200			$535,700
Current liabilities		$85,200			$79,300			$70,600
Long-term debt		145,300			84,500			50,700
Common stock, $10 par		330,000			316,000			310,000
Retained earnings		164,200			118,400			104,400
		$724,700			$598,200			$535,700

Jergan Corporation Income Statement For the Years Ended December 31
		2020			2019
Sales revenue		$736,500			$606,500
Less: Sales returns and allowances		39,400			29,300
Net sales		697,100			577,200
Cost of goods sold		427,200			373,000
Gross profit		269,900			204,200
Operating expenses (including income taxes)		179,277			152,252
Net income		$ 90,623			$ 51,948

Additional information:

1.		The market price of Jergan’s common stock was $7.00, $7.50, and $8.50 for 2018, 2019, and 2020, respectively.
2.		You must compute dividends paid. All dividends were paid in cash.

(a)

Compute the following ratios for 2019 and 2020. (Round Asset turnover and Earnings per share to 2 decimal places, e.g. 1.65. Round payout ratio and debt to assets ratio to 0 decimal places, e.g. 18%. Round all other answers to 1 decimal place, e.g. 6.8 or 6.8%.)

				2019			2020
(1)		Profit margin			%			%
(2)		Gross profit rate			%			%
(3)		Asset turnover			times			times
(4)		Earnings per share		$			$
(5)		Price-earnings ratio			times			times
(6)		Payout ratio			%			%
(7)		Debt to assets ratio			%			%

Answer 1

Answer of Part 1:

For 2019:

Profit Margin = Net Income / Sales *100
Profit Margin = $51,948 / $577,200 *100
Profit Margin = 9%

For 2020:

Profit Margin = Net Income / Sales *100
Profit Margin = $90,623 / $697,100 *100
Profit Margin = 13%

Answer of Part 2:

For 2019:

Gross Profit rate = Gross Profit / Sales *100
Gross Profit rate = $204,200 / $577,200 *100
Gross Profit rate = 35.4%

For 2020:

Gross Profit rate = Gross Profit / Sales *100
Gross Profit rate = $269,900 / $697,100 *100
Gross Profit rate = 38.7%

Answer of Part 3:

For 2019:

Average Assets = (Beginning Assets + Ending Assets) /2
Average Assets = ($535,700 + $598,200)/2
Average Assets = $566,950

Asset Turnover = Sales / Average Assets
Asset Turnover = $577,200 / $566,950
Asset Turnover = 1.02 times

For 2020:

Average Assets = (Beginning Assets + Ending Assets) /2
Average Assets = ($598,200 + $724,700)/2
Average Assets = $661,450

Asset Turnover = Sales / Average Assets
Asset Turnover = $697,100 / $661,450
Asset Turnover = 1.05 times

Answer of Part 4:

For 2019:

No. of Common Stock Outstanding = $316,000 / $10
No. of Common Stock Outstanding = 31,600

Earnings Per Share = Net Income / No. of Common Stock Outstanding
Earnings Per Share = $51,948 /31,600
Earnings Per Share = $1.64

For 2020:

No. of Common Stock Outstanding = $330,000 / $10
No. of Common Stock Outstanding = 33,000

Earnings Per Share = Net Income / No. of Common Stock Outstanding
Earnings Per Share = $90,623 /33,000
Earnings Per Share = $2.75

Answer of Part 5:

For 2019:

Price Earnings Ratio = Market Price of Share / Earnings Per Share
Price Earnings Ratio = $7.50 / $1.64
Price Earnings Ratio = 4.6 times

For 2020:

Price Earnings Ratio = Market Price of Share / Earnings Per Share
Price Earnings Ratio = $8.50 / $2.75
Price Earnings Ratio = 3.1 times